United States Office of Personnel Management Retirement and … · Since the new 5-year test...

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United States

Office of Personnel Management

Retirement and Insurance Service

Benefits Administration LetterNumber: 98-114 Date: November 3, 1998

Subject: Notifying Employees Who May be Affected by the Decision of theCourt in the Case of Conner v. OPM

Background: Benefits Administration Letter (BAL) 97-107 advised agency personneloffices of the decision of the United States Court of Appeals for theFederal Circuit in Conner v. U.S. Office of Personnel Management(OPM).

Basically the court ruled that our regulations implementing a portion of the5-year test in the Federal Employees Retirement System (FERS) law wereincorrect. The 5-year test is used to determine whether an employee whois subject to Social Security is automatically covered by FERS. If anemployee satisfies the 5-year test, he or she is not automatically covered byFERS, even though he or she may elect FERS coverage. The court's rulingapplies only in cases in which employees were placed in automatic FERScoverage, not those who elected to join FERS.

Since the new 5-year test applies to all retirement coverage determinationsmade on or after January 1, 1987, any employee who was placed inautomatic FERS, despite having completed 5 years of creditable civilianservice before 1987, has been placed in the wrong retirement system. Therefore, personnel offices were advised that all affected employees wereto be notified and provided with an election opportunity.

BAL 97-107 provided guidance on the actions required to ensure that allaffected employees would be identified and notified of their options. Agencies were given discretion concerning the means they would use toidentify these employees and the methods of notification they would use. As stated in BAL 97-107, when agencies become aware that an employeewas erroneously placed in automatic FERS, they must apply the "deemedFERS" procedures contained in part 11A6 of the CSRS and FERSHandbook for Personnel and Payroll Offices.

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We conducted an informal survey of larger agencies to gauge the progressmade in 1) identifying employees who are potentially affected by theConner decision, 2) notifying affected employees of their options, and 3)taking action to effect employees' decisions. We found disparities in thedegree of initiative shown by different agencies. Some agencies actedpromptly to take actions, while others still have work to do.

This BAL is being issued to ensure that all affected employees are madeaware of the Conner decision and receive equal consideration. Thefollowing sections provide detailed instructions on the actions that mustbe taken by each agency.

Identifying and Notifying Affected Employees

If not already done, agencies must take action to notify affected employees. You have discretionto determine the most effective means of identifying employees in your agency. A number ofagencies have used general employee notices in the form of bulletins, newsletter articles, earningsstatement messages and employee memorandums, while other agencies have chosen to useautomated personnel reports or Official Personnel Folder (OPF) audits to identify employees. You may want to consider using more than one method to identify employees, because itincreases the probability that potentially affected employees will be informed. During the surveymentioned earlier, we discovered that most cases were located through the combined use ofemployee self-identification and agency audits.

Once employees have been notified, some will request information. It is critical that employeesreceive complete information. Making an informed election of retirement coverage is a decisionof great importance to employees. Agencies should ensure that employees are fully informedconcerning the impact their decision will have on their future benefits. Toward this end, we areproviding an attachment that lists necessary actions and highlights key areas of concern thatshould be addressed in notices, and provides sample employee letters. Every effort should bemade to provide employees with a notice that is clear, concise, and fully informative.

Taking Corrective Actions

The employee’s records must be corrected consistent with the election, including the ThriftSavings Plan account. If the employee opts not to be deemed to have elected FERS coverage,any contributions to the Thrift Savings Plan in excess of 5%, as well as any agency matching andautomatic 1% contributions, must be backed out of the employee’s account in accordance withthe regulations of the Federal Retirement Thrift Investment Board.

If, while under FERS, the employee made a deposit under FERS rules for military service or forthe nondeduction civilian service performed before erroneous coverage began, the amount due for

BAL 98-114 3

the deposit must be re-computed under Civil Service Retirement System (CSRS) rules, since boththe military and civilian service will either be part of a CSRS component of a FERS benefit (if theemployee elects to remain in FERS), or will be included in the computation of a CSRS Offsetannuity, if the employee elects CSRS Offset. The employee must be informed of the correctedamount(s) due, and of his or her entitlement to choose to receive repayment of amounts alreadypaid.

In cases where the coverage error was directly caused by an erroneous OPM regulation and anemployee has made service credit deposits based on information that is now erroneous, OPM willwaive a portion of the interest that normally accrues on the service credit deposit for employeeswho elect to remain in FERS. For employees who have fully completed payment of a deposit andelect to remain in FERS, no interest will be assessed on the additional principal now owed. If theemployee has made partial payment of a deposit and elects to remain in FERS, interest on theadditional principal amount will be assessed prospectively. Interest will fully accrue on depositsfor which the employee has made no payments and if the employee elects CSRS Offset coverage. These interest rules apply only in cases where the FERS coverage is wrong as a result of theConner decision where the court ruled that OPM’s regulations implementing the 5-year test wereincorrect. They do not apply to other deemed FERS elections where an employee can elect toremain in FERS because his or her agency erred in placing the employee under FERS.

In order to have a successful undertaking, there must also be careful coordination andcommunication between the personnel and payroll offices and the employee. Employees who willhave their benefits and contributions adjusted based on their election should have a contact personin both personnel and payroll, who will be able to explain the changes to them, or the name of anindividual who can address both personnel and payroll matters. Personnel should make sure thatthe employee is fully informed of the options available, and payroll must in turn ensure that theemployee is kept abreast of any changes to his or her account. Each employee should receive adetailed written accounting of any changes to their funds. The attached procedures can helpensure that you take all necessary actions.

Reporting Requirements

Each agency headquarters will be responsible for coordinating the efforts of the field installations. By no later than January 31, 1999, each agency must submit a written report to OPM detailingthe results of this undertaking. By that date, we expect that virtually all affected employees willhave completed their elections. Please cover the following in your reports:

1. Identification method used (e.g., general employee notice, OPF review, etc.)

2. Total number of Conner cases identified

3. Total number of cases in which employees elected deemed FERS

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4. Total number of cases in which employees elected CSRS Offset

5. Total number of cases in which employees elected FICA only

6. If all cases have not been corrected by the end of this year, state the date on which allactions are expected to be completed.

Completed reports should be forwarded to the following address by close of business January 31,1999:

Office of Personnel ManagementAgency Services DivisionP.O. Box 571900 E Street, NWWashington, DC 20415-0001

If there are questions about actions to be taken, please call your Agency Services Division liaisonperson. You may also submit questions and your completed reports by faxing us on (202) 606-1108, or emailing [email protected].

Mary M. Sugar, ChiefAgency Services Division

Attachment

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Procedures for Processing Conner Cases

If you determine that the employee is in the wrong retirement system as a result of the Conner v.OPM decision, apply the deemed FERS regulations in Section 846.204(b)(1) of Title 5, Code ofFederal Regulations. Affected employees can choose between a retroactive correction ofretirement coverage to the appropriate retirement coverage or to be deemed to have electedFERS. For additional information, see part 11A6 of the CSRS and FERS Handbook forPersonnel and Payroll Offices. Take the following steps:

1. Notify employee of the retirement coverage error. See sample letters–Attachments 1 and 2.

VI. Explain how you discovered the error and how the error occurred.VII. Discuss Conner case and how it changed the 5-year test.VIII. Advise employee that if s/he chooses to have coverage corrected, retirement

coverage will be corrected retroactively from FERS to CSRS Offset (or SocialSecurity only).

IX. Advise employee that unless s/he elects in writing within 60 days of the date of thenotice to be corrected retroactively to CSRS Offset (or Social Security only) coverage, s/hewill be deemed to have elected FERS.

X. Explain how Conner decision affects nondeduction service and any military serviceperformed before the error occurred and any deposit paid for the service. See the followingtables for more information.

XI. Explain how election will affect Thrift Savings Plan account.XII. Give name and phone number of a counselor, preferably at a local level, who will be

correcting the retirement coverage and the Thrift Savings Plan account.

2. Give employee a copy of the FERS Transfer Handbook and Standard Form 3109, Electionof Coverage, or a form letter to document the election.

3. Do annuity projections for employee as of the earliest entitlement date to help him or hercompare CSRS Offset and FERS benefits. (Also, do projections for an employee who ischoosing between Social Security-only coverage and FERS.) Do not use the FERSTransfer Model: It will not let you enter retroactive FERS transfer dates.

4. Give employee 60 days from date of notice to make election.

5. Identify the counselor, preferably at a local level, who will be correcting the retirementcoverage and the Thrift Savings Plan Account. This person needs to be someone who cananswer the employee's questions and will be able to discuss the impact of correctingretirement coverage and its effect on future retirement benefits. The counselor should alsobe able to explain the payroll office process and keep the employee abreast of any changesto his or her account. If the counselor cannot answer questions about the payroll changes,identify a contact person in payroll who can answer those questions. It’s the agency’s

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responsibility for counseling the employee about the consequences of the election.

6. Seek assistance, if necessary, from the Social Security Administration.

When An Employee Has More Than One Period of Erroneous FERS Coverage

Some employees may have more than one period of service following the erroneous FERScoverage. If the employee would have had an opportunity to transfer to FERS during thesubsequent period of service, s/he can choose during which period of service a deemed FERSelection would become effective.

Example

An employee was placed in FERS during her term appointment on January 6, 1989. (Although she had 8 years of prior service, she had no prior retirement coverage.) The termappointment ended on January 5, 1993. She had a 9-month temporary appointment withSocial Security-only coverage in 1994. On July 5, 1996, she received a career-conditionalappointment and was again placed in FERS.

As a result of Conner, her FERS coverage on January 6, 1989, and later on July 5, 1996,was erroneous because she had more than 5 years of creditable civilian service before 1987. She should have had only Social Security coverage on January 6, 1989, and been given a6-month election opportunity to transfer to FERS.

Under the deemed FERS regulations, she can elect to remain in FERS or have herretirement coverage corrected to Social Security-only on January 6, 1989. If she chooses tohave her coverage corrected to Social Security for that period of service, then she will haveto choose whether she wants to remain in FERS on July 5, 1996, or have her coveragecorrected to CSRS Offset. Regardless which she chooses, her service before July 5, 1996,will be credited under CSRS rules. That means that she can pay a CSRS deposit for boththe 4-year term appointment and 9-month temporary appointment to have the service usedin computing her retirement benefit even though both were after 1988. Under CSRS rules,no deposit is necessary for the service to count toward eligibility for retirement.

If, instead, she chooses to be deemed to have elected FERS on January 6, 1989, her 9months of temporary service in 1994 falls under the rules for FERS. Therefore, the serviceis not creditable because it was performed after 1988. Her FERS coverage resumes onJuly 5, 1996.

The employee was automatically placed in FERS twice when she should have been given theopportunity to elect FERS. Therefore, if she wants FERS coverage, she can choose onwhich of those two appointments she wants her FERS coverage to begin.

The Next Steps

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The next steps depend upon the type of retirement coverage the employee elects. An employee ina permanent position must choose between CSRS Offset coverage and FERS. An employee in anonpermanent position that is excluded from CSRS but not from FERS (for example, termappointments, excepted indefinite appointments, or overseas limited appointments) must choosebetween Social Security-only coverage and FERS. An employee who was erroneously placed inFERS while in a CSRS-excluded position but who was later converted to a permanent positionmust choose between Social Security-only coverage and FERS on the date of the erroneouscoverage. However, since the employee currently has a permanent position, if s/he chooses tohave the retirement coverage corrected to Social Security only, that coverage becomes CSRSOffset effective on the date of the permanent appointment. The employee would not have asecond opportunity to elect FERS coverage on the date of the conversion to a permanent positionbecause there was no break in service.

The following sample letters and tables should help you notify and counsel employees about theeffects of a coverage decision and also tell you what steps need to be taken based on theemployee’s decision.

Attachment 1: Sample Letter to Employee Who Was Erroneously Placed in FERS Rather ThanCSRS Offset

The letter is only a sample and will have to be modified to fit each employee’sparticular situation. In the sample, the erroneous FERS coverage began onApril 1, 1990; there was no break in service after the erroneous coverage; theemployee is married; she has nondeduction service both before and afterOctober 1, 1982; her deposit for her civilian service is computed at 7 percent ofher base pay; she has no military service; and she contributed a full 10 percentof her pay to her Thrift Savings Plan account. The decision tables inAttachments 3, 5, and 6 will help you determine which issues to cover and howto modify your letter for each affected employee.

Attachment 2: Sample Letter to Employee Who Was Erroneously Placed in FERS Rather ThanSocial Security Only

The letter is only a sample and will have to be modified to fit each employee’sparticular situation. In the sample, the erroneous FERS coverage began onApril 1, 1994, with the employee’s term appointment; the term appointment hasnot ended; the employee is married; he has nondeduction service both beforeand after October 1, 1982; he has no military service; and he contributed 5percent of his pay to his Thrift Savings Plan account. The decision tables inAttachments 4, 5, and 7 will help you determine which issues to cover and howto modify your letter for each affected employee.

Attachment 3: FERS versus CSRS Offset Coverage Decision Table

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Attachment 4: FERS versus Social Security Only Decision Table

Attachment 5: Thrift Savings Plan Account (If employee elects deemed FERS coverage)

Attachment 6: Thrift Savings Plan Account (If employee elects to have retirement coveragecorrected to CSRS Offset)

Attachment 7: Thrift Savings Plan Account (If employee elects to have retirement coveragecorrected to Social Security Only)

Attachment 1

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Sample Letter to Employee

(Who Was Erroneously Placed in FERS Rather Than CSRS Offset)

This letter is only a sample and will have to be modified to fit each employee’sparticular situation. In this sample, the erroneous FERS coverage began on April 1,1990; there was no break in service after the erroneous coverage; the employee ismarried; she has nondeduction service both before and after October 1, 1982; herdeposit for her civilian service is computed at 7 percent of her base pay; she has nomilitary service; and she contributed a full 10 percent of her pay to her ThriftSavings Plan account. The decision tables in Attachments 3, 5, and 6 will help youdetermine which issues to cover and how to modify your letter for each affectedemployee.

Thank you for bringing your case to our attention.

We asked all employees who had been automatically placed in the Federal Employees RetirementSystem (FERS) and who had completed 5 years of creditable civilian service as of December 31,1986, to contact us. After a careful review of your employment history, we found that you are inthe wrong retirement system. You must now decide whether you want to remain where you areor have your retirement coverage corrected to Civil Service Retirement System (CSRS) coverageas a CSRS Offset employee.

You have 60 days from the date of this notice to decide whether you want to remain in FERS orhave your coverage retroactively corrected to CSRS Offset coverage. If you make no election,you will be deemed to have elected FERS.

Both CSRS Offset and FERS are good retirement plans. Social Security is a part of both, so nomatter which you choose your Social Security coverage continues. Each plan has advantages anddisadvantages. Either way, your decision deserves careful thought.

The enclosed FERS Transfer Handbook will help you choose. It contains an overview of bothretirement systems, discusses the differences between FERS and CSRS, and provides examples. Please read it carefully before making your decision.

Although the FERS Transfer Handbook provides a good comparison of CSRS and FERS, it waswritten for employees who are in the proper retirement system. There are a few things we wantto point out before you make your decision. The enclosure, “Considerations In ChoosingBetween CSRS Offset and FERS Coverage,” explains how the coverage error occurred. It alsodiscusses how your decision will affect your benefits and provides additional information thatshould help you choose. All of the information in the enclosure applies to you, so consider theinformation carefully before making a choice.

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We can help, too. We can provide projections of your retirement benefits under both FERS andCSRS Offset. We can also project your Social Security and, based on assumed rates of returnand future contributions, Thrift Savings Plan benefits, so you can compare your total benefitsunder both plans.

Your Official Personnel Folder has been forwarded to your local Human Resources Office for itstemporary use. [Joan Smith], your Benefits Officer, will be able to counsel you regarding FERSand CSRS Offset benefits, do benefits projections, and explain your potential benefits under bothretirement systems.

We included a copy of Standard Form 3109, Election of Coverage, with the FERS TransferHandbook. Please sign Part 1 of the election form.* Your signature verifies that you received theelection form and the FERS Transfer Handbook. It is not an election of retirement coverage. Ifyou decide that you want to remain in FERS, complete Part 2 of the election form and return it toyour Human Resources Office. Remember that if you choose to remain in FERS, you can’tchange your mind later, so you want to choose carefully.

We realize this error may cause you some concern, and we regret that. We want to make this aseasy for you as we can. [Joan Smith] of your local Human Resources Office, extension 1234, isavailable to provide counseling and information to you about CSRS and FERS, Social Security, and the Thrift Savings Plan and to answer any questions you may have.

Please acknowledge receipt of this notice by returning a signed and dated copy of this letter.*

Enclosure

Signature Date

* Note to agency representatives: You need to be able to document that you notified theemployee of the coverage error and his or her options. Having the employee sign the receiptcopy of the letter and SF 3109 is one way to accomplish this. However, you may use any methodthat accomplishes the purpose. See Section 11A6.1-1D in Chapter 11 of the CSRS and FERSHandbook for Personnel and Payroll Offices for more information about the documentationrequirement.

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Considerations In Choosing Between CSRS Offset and FERS Coverage

How the Coverage Error Occurred

This coverage error is the result of a recent decision of the United States Court of Appeals for theFederal Circuit in the case of Conner v. OPM. The court ruled that the U.S. Office of PersonnelManagement’s regulations that tell agencies how to apply the 5-year test were incorrect. The5-year test is used to determine whether an employee who is subject to Social Security isautomatically covered by FERS. If an employee satisfies the 5-year test, he or she is notautomatically covered by FERS, even though the employee may elect FERS coverage.

Because of the ruling in Conner, a new rule now applies. It states that an employee whoperformed 5 years of creditable civilian service before January 1, 1987, is excluded fromautomatic FERS coverage. This new rule revises the 5-year test. The revised 5-year test appliesto all retirement coverage determinations made on or after January 1, 1987. It affects youbecause you had more than 5 years of civilian service before 1987.

Below is a summary of your employment history.

Dept. of Interior Temporary Appointment June 27, 1976, to June 26, 1977Dept. of Army Term Appointment March 1, 1980, to February 29, 1984OPM Temporary Appointment September 14, 1985, to September 13, 1986XYZ Agency Career-Conditional April 1, 1990, to present

Appointment

On April 1, 1990, when you received a career-conditional appointment with us, we placed you inFERS. Based on the revised 5-year test, that retirement coverage is now wrong. You shouldhave been placed under CSRS Offset coverage with the right to elect FERS.

CSRS Offset Benefits

Although your Social Security benefits will be the same under both systems, the amount of yourSocial Security benefit will affect a CSRS Offset annuity. (When a CSRS Offset employee retires,her annuity is computed under the same rules that apply to other CSRS retirees. However, whenshe becomes eligible for Social Security benefits, her annuity will be reduced, or offset, by thevalue of the Social Security benefit she earned during her CSRS Offset service.)

If you have a record of your Social Security earnings or an estimate of your Social Securitybenefits from the Social Security Administration, we can provide a more realistic projection ofyour CSRS Offset benefit when you become eligible for Social Security. If you don't already havethat information, you can request a Personalized Earnings and Benefit Estimate Statement fromthe Social Security Administration. [Joan Smith] can help you request one. You can also do it

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yourself by accessing the Social Security web site at www.ssa.gov.

Correction of Your Records

If you elect to have your records corrected to CSRS Offset coverage, that coverage will be maderetroactive to April 1, 1990. If you remain in FERS, the effective date of your FERS coveragewill not change, but your Standard Form 50 showing your career-conditional appointment will becorrected to show that you elected FERS coverage effective April 1, 1990, rather than beingautomatically placed in FERS on that date. This changes how your service performed beforeApril 1, 1990, is treated.

The amount withheld from your salary for Social Security and retirement is the same under FERSand CSRS Offset. However, if you choose to have your records corrected to CSRS Offset, theretirement money will have to be moved from your FERS account to a new CSRS account. Thepayroll office would take care of that.

[Note to agency representatives: The amount is the same except for highly compensated personswhose earnings exceed the Social Security maximum wage base in any calendar year. In thosecases, you’ll need to replace the above paragraph. CSRS Offset would be more expensive, sincethe CSRS contribution reverts to 7% when the employee’s basic pay meets the maximum forretirement earnings. In addition, there can be a gap if the employee had earnings that aren’tbasic pay for retirement, for example, awards or overtime. Use language similar to thefollowing: “The amount withheld from your salary for Social Security is the same under FERSand CSRS Offset. However, if you choose to have your coverage corrected to CSRS Offset, youwill owe additional money to the retirement fund. That’s because, under CSRS Offset, when anemployee’s earnings exceed the Social Security maximum wage base in any calendar year, hisretirement contribution rate changes from .8% of his basic pay to 7%. This means that incalendar years 19xx through 19xx, your salary was overpaid when your earnings from yourbasic pay exceeded the Social Security maximum. If you elect CSRS Offset coverage, you wouldhave been overpaid $ for those years.”]

Service Credited Under CSRS Rules Even If You Remain Under FERS

Whether you remain in FERS or elect to have your coverage corrected to CSRS Offset, yourcivilian service before April 1, 1990, is credited under CSRS rules. The “Service Credit Depositsand Refunds” section in the FERS Transfer Handbook explains how civilian service is creditedunder CSRS when no retirement deductions were withheld from your salary. Your service beforeOctober 1, 1982, is treated differently from your service on and after October 1, 1982. All of theservice counts in deciding whether you have enough service to be eligible to retire, but the serviceon and after October 1, 1982, can be used to compute your retirement benefit only if you pay adeposit for the service. The service before October 1, 1982, is used to compute your retirementbenefit even if a deposit is not paid for the service, but your annuity is reduced because thedeposit is not paid.

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The deposit under CSRS is 7 percent of your earnings during the period when no deductions werewithheld, plus interest. That's different from a FERS deposit which is 1.3 percent of yourearnings. If you already paid a FERS deposit for the service, let us know. You will oweadditional money. We will contact the U.S. Office of Personnel Management, so they cancompute a CSRS deposit and give you credit for the deposit amount already paid. You also canchoose to have the money you already paid returned to you.

Social Security Benefits Are Not Affected by Your Decision

The FERS Transfer Handbook discusses the Government Pension Offset and Windfall EliminationFormula. Both can affect the amount of Social Security benefits payable to certain Federalemployees. The Government Pension Offset affects a spouse's share of a worker's Social Securitybenefit while the worker is living and the survivor benefit after the worker dies. If you expect tobe eligible for spouse and survivor benefits from Social Security based on your husband’s SocialSecurity earnings, we want you to know that you do not need to consider the GovernmentPension Offset when making your decision. Because you are automatically covered by SocialSecurity, neither the Social Security spouse benefit nor the survivor benefit will be subject to theGovernment Pension Offset whether you choose CSRS Offset or FERS coverage.

If you have always had Social Security deducted from your pay during your employment bothinside and outside of the government, your Social Security benefit will not be subject to theWindfall Elimination Formula. This is true whether you elect CSRS Offset or FERS coverage.

Effect on Your Thrift Account

You have been contributing 10 percent of your pay to your Thrift Savings Plan (TSP) accountand receiving agency automatic (1%) and agency matching contributions. You became eligible toparticipate in the TSP on [insert date]. However, as a FERS Transfer employee, you would havebecome eligible to participate in the TSP on April 1, 1990 [insert effective date of deemed FERSelection]. Consequently, if you elect to remain in FERS, you are entitled to retroactive agencyautomatic (1%) contributions for the period April 1, 1990, [insert effective date of deemed FERSelection] to [insert date employee became eligible to participate in the TSP]. You will also havethe opportunity to make up employee contributions missed during this period. If you make upemployee contributions, you will receive associated retroactive agency matching contributions. Inaddition, you are entitled to lost earnings on the retroactive agency contributions that are made toyour account.

If you choose CSRS Offset coverage, you are not entitled to the agency contributions andattributable earnings to your account, and they will be removed from your account. Also, we willask the TSP to remove the excess employee contributions from your account (i.e., employeecontributions that exceed the CSRS five percent limit), and we will refund these excess employeecontributions to you with your pay. In addition, you may request a refund of the remainder of theemployee contributions in your TSP account, and if you do so, we will also ask the TSP toremove these contributions and refund them to you with your pay. All the employee contributions

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that are refunded to you will be taxable as ordinary income for the year in which they arerefunded. The earnings attributable to your refunded employee contributions will remain in yourTSP account. Please contact [Joan Smith] for additional information and assistance.

[Note to agency representatives: The employee’s latest TSP Participant Statement will show thetotal amount of employee contributions and attributable earnings, agency automatic (1%)contributions and attributable earnings, and agency matching contributions and attributableearnings in the TSP account. If the employee requests updated amounts, please call the FederalRetirement Thrift Investment Board. Only the agency payroll office, however, can determine theamount of the excess employee contributions it deposited in the employee’s account. For moreinformation about correcting TSP accounts, see the TSP error correction regulations at 5 CFRpart 1605 and the lost earnings regulations at 5 CFR part 1606.]

FERS Open Season

If you choose to have your retirement coverage corrected to CSRS Offset, you will be able toelect to transfer to FERS during the current FERS Open Season. However, this may not be awise choice because all of your CSRS Offset service will be credited under FERS rules. Thatmeans you would be trading the more generous CSRS annuity formula for the FERS formula, butyou would not get a Government match on your Thrift account for that service. If you wantFERS coverage, then you should choose deemed FERS coverage effective April 1, 1990, the dateyou were erroneously placed in FERS.

Attachment 2

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Sample Letter to Employee

(Who Was Erroneously Placed in FERS Rather Than Social Security Only)

This letter is only a sample and will have to be modified to fit each employee’sparticular situation. In this sample, the erroneous FERS coverage began onApril 1, 1994, with the employee’s term appointment; the term appointment hasnot ended; the employee is married; he has nondeduction service both before andafter October 1, 1982; he has no military service; and he contributed 5 percent ofhis pay to his Thrift Savings Plan account. The decision tables in Attachments 4,5, and 7 will help you determine which issues to cover and how to modify yourletter for each affected employee.

Thank you for bringing your case to our attention.

We asked all employees who had been automatically placed in the Federal Employees RetirementSystem (FERS) and who had completed 5 years of creditable civilian service as ofDecember 31, 1986, to contact us. After a careful review of your employment history, we found that you are in the wrong retirement system. You must now decide whether you want to remainwhere you are or have your retirement coverage corrected to Social Security only.

You have 60 days from the date of this notice to decide whether you want to remain in FERS orhave your coverage retroactively corrected to Social Security only. If you make no election, youwill be deemed to have elected FERS. The following information may help you decide.

Your term appointment is excluded from coverage under the old Civil Service Retirement System,or CSRS. If you choose to have your records corrected, you will only have Social Securitycoverage. But, if you later get a permanent appointment, you will be covered by both CSRS andSocial Security as a CSRS Offset employee. When a CSRS Offset employee retires, his annuity iscomputed under the same rules that apply to other CSRS retirees. However, when he becomeseligible for Social Security benefits, his annuity will be reduced, or offset, by the value of theSocial Security benefit he earned during his CSRS Offset service.

So, your choice isn’t just between FERS coverage and no retirement coverage, other than SocialSecurity. You must also look at your future career expectations. You must decide whether tokeep the FERS coverage you currently have or give it up with the expectation you will receive apermanent appointment in the future that would give you CSRS Offset coverage. Most peoplewould probably choose to remain in FERS because of the unknown career future.

If you believe that, in the future, you will have a permanent appointment that would provideCSRS Offset coverage, then you need to compare the relative benefits of CSRS Offset and FERS. Your decision deserves careful thought, but remember no matter what you decide your SocialSecurity coverage continues.

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The enclosed FERS Transfer Handbook may help you choose. It contains an overview of bothretirement systems, discusses the differences between FERS and CSRS, and provides examples. Please read it carefully before making your decision.

Although the FERS Transfer Handbook provides a good comparison of CSRS and FERS, it waswritten for employees who are in the proper retirement system. There are a few things we wantto point out before you make your decision. The enclosure, “Considerations In ChoosingBetween FERS and Social Security-Only Coverage,” explains how the coverage error occurred. It also discusses how your decision will affect your benefits and provides additional informationthat should help you choose. All of the information in the enclosure applies to you, so considerthe information carefully before making a choice.

We can help, too. We can provide a projection of your retirement benefit under FERS. We canalso project your Social Security and TSP benefits, so you can compare your total benefits underFERS with Social Security alone.

Your Official Personnel Folder has been forwarded to your local Human Resources Office fortheir temporary use. [Joan Smith], your Benefits Officer, will be able to counsel you regardingSocial Security, FERS and CSRS Offset benefits, do benefits projections, and explain yourpotential benefits.

We included a copy of Standard Form 3109, Election of Coverage, with the FERS TransferHandbook. Please sign Part 1 of the election form.* Your signature verifies that you received theelection form and the FERS Transfer Handbook. It is not an election of retirement coverage. Ifyou decide that you want to remain in FERS, complete Part 2 of the election form and return it toyour Human Resources Office. Remember that if you choose to remain in FERS, you can’tchange your mind later; so you want to choose carefully.

We realize this error may cause you some concern, and we regret that. We want to make this aseasy for you as we can. [Joan Smith] of your local Human Resources Office, extension 1234, isavailable to provide counseling and information to you about CSRS Offset and FERS, SocialSecurity, and the Thrift Savings Plan and to answer any questions you may have.

Please acknowledge receipt of this notice by returning a signed and dated copy of this letter.*

Enclosure

Signature Date

Attachment 2

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* Note to agency representatives: You need to be able to document that you notified theemployee of the coverage error and his or her options. Having the employee sign the receiptcopy of the letter and SF 3109 is one way to accomplish this. However, you may use any methodthat accomplishes the purpose. See Section 11A6.1-1D in Chapter 11 of the CSRS and FERSHandbook for Personnel and Payroll Offices for more information about the documentationrequirement.

Attachment 2

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Considerations In Choosing Between FERS and Social Security Only Coverage

How the Coverage Error Occurred

This coverage error is the result of a recent decision of the United States Court of Appeals for theFederal Circuit in the case of Conner v. OPM. The court ruled that the U.S. Office of PersonnelManagement’s regulations that tell agencies how to apply the 5-year test were incorrect. The5-year test is used to determine whether an employee who is subject to Social Security isautomatically covered by FERS. If an employee satisfies the 5-year test, he or she is notautomatically covered by FERS, even though the employee may elect FERS coverage.

Because of the ruling in Conner, a new rule now applies. It states that an employee whoperformed 5 years of creditable civilian service before January 1, 1987, is excluded fromautomatic FERS coverage. This new rule revises the 5-year test. The revised 5-year test appliesto all retirement coverage determinations made on or after January 1, 1987. It affects youbecause you had more than 5 years of civilian service before 1987.

Below is a summary of your employment history.

Dept. of Interior Temporary Appointment June 27, 1976, to June 26, 1977Dept. of Army Term Appointment March 1, 1980, to February 29, 1984OPM Temporary Appointment September 14, 1985, to September 13, 1986XYZ Agency Term Appointment April 1, 1994, to present

On April 1, 1994, when you received a term appointment with us, we placed you in FERS. Basedon the revised 5-year test, that retirement coverage is now wrong. You should have been placedunder Social Security alone with the right to elect FERS.

Personalized Earnings and Benefit Estimate Statement

If you have a record of your Social Security earnings or an estimate of your Social Securitybenefits from the Social Security Administration, we can provide more realistic projections ofyour benefits. If you don't already have that information, you can request a Personalized Earningsand Benefit Estimate Statement from the Social Security Administration. [Joan Smith] can helpyou request one. You can also do it yourself by accessing the Social Security web site atwww.ssa.gov.

Correction of Your Records

If you elect to have your records corrected to only Social Security coverage, it will be maderetroactive to April 1, 1994. If you remain in FERS, the effective date of your FERS coveragewill not change, but your Standard Form 50 showing your term appointment will be corrected to

Attachment 2

19

show that you elected FERS coverage effective April 1, 1994, rather than being automaticallyplaced in FERS on that date. This changes how your service performed before April 1, 1994, istreated.

If you choose to have your records corrected to Social Security only, the retirement moneywithheld from your pay and deposited into your account in the Civil Service Retirement andDisability Fund will be removed from your FERS account and returned to you. Since you haveno retirement coverage, your FERS account will be closed out. The payroll office would takecare of that. Your civilian service will not count toward a Federal retirement benefit, unless youare later covered by CSRS Offset or FERS.

In addition, your TSP account will be closed. If you choose to be covered by Social Securityonly, you are not, and should not have been, eligible to participate in the TSP. Consequently, wewill ask the TSP to remove all contributions from your TSP account. We will refund youremployee contributions to you along with your pay, and these contributions are taxable asordinary income for the year in which they are refunded. The earnings on your employeecontributions will also be paid to you by the TSP. These earnings are also taxable as ordinaryincome for the year in which they are paid. You are not entitled to receive the agencycontributions or attributable earnings in your account.

Health and Life Insurance Coverage

You will keep your Federal health benefits and life insurance coverage if you are currentlyenrolled.

Service Credited Under CSRS Rules Even If You Remain Under FERS

If you remain in FERS, your civilian service before April 1, 1994, is credited under CSRS rules. That’s because as a FERS Transferee, rather than someone automatically placed in FERS, yourFERS annuity will have a CSRS component. The “Service Credit Deposits and Refunds” sectionin the FERS Transfer Handbook explains how civilian service is credited under CSRS when noretirement deductions were withheld from your salary. Your service before October 1, 1982, istreated differently from your service on and after October 1, 1982. All of the service counts indeciding whether you have enough service to be eligible to retire, but the service on and afterOctober 1, 1982, can be used to compute your retirement benefit only if you pay a deposit for theservice. The service before October 1, 1982, is used to compute your retirement benefit even if adeposit is not paid for the service, but your annuity is reduced if the deposit is not paid.

The deposit under CSRS is 7 percent of your earnings during the period when no deductions werewithheld, plus interest. That's different from a FERS deposit which is 1.3 percent of yourearnings. If you already paid a FERS deposit for the service, let us know. You will oweadditional money. We will contact the U.S. Office of Personnel Management, so they cancompute a CSRS deposit and give you credit for the deposit amount already paid. You also canchoose to have the money you already paid returned to you.

Attachment 2

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Social Security Benefits Are Not Affected by Your Decision

The FERS Transfer Handbook discusses the Government Pension Offset and Windfall EliminationFormula. Both can affect the amount of Social Security benefits payable to certain Federalemployees. The Government Pension Offset affects a spouse's share of a worker's Social Securitybenefit while the worker is living and the survivor benefit after the worker dies. If you expect tobe eligible for spouse and survivor benefits from Social Security, we want you to know that youdo not need to consider the Government Pension Offset when making your decision. Becauseyou are automatically covered by Social Security, neither the Social Security spouse benefit northe survivor benefit will be subject to the Government Pension Offset under either CSRS Offset orFERS coverage.

If you have always had Social Security deducted from your pay during your employment bothinside and outside of the government, your Social Security benefit will not be subject to theWindfall Elimination Formula. This is true under both CSRS Offset and FERS coverage.

Effect on Your Thrift Account

You have been contributing 5 percent of your pay to your Thrift Savings Plan account andreceiving the agency automatic (1%) and agency matching contributions. You became eligible toparticipate in the TSP on [insert date]. However, as a FERS Transfer employee, you would havebecome eligible to participate in the TSP on [insert effective date of deemed FERS election]. Consequently, if you elect to remain in FERS, you are entitled to retroactive agency automatic(1%) contributions for the period [insert effective date of deemed FERS election] to [insert dateemployee became eligible to participate in the TSP]. You will also have the opportunity to makeup employee contributions missed during this period. If you make up employee contributions,you will receive associated retroactive agency matching contributions. In addition, you areentitled to lost earnings on the retroactive agency contributions that are made to your account. Please contact [Joan Smith] for additional information and assistance.

FERS Open Season

We are currently in a FERS Open Season. If you want FERS coverage, you must decide whetheryou want the coverage to be retroactive to April 1, 1994, as a deemed FERS election or in thefuture, as a FERS Open Season election. Weigh your options carefully: Which one you choosewill make a difference in your benefits. If you elect FERS as part of the open season, yourcurrent TSP account will be closed, but all of your service before the open season electionbecomes effective will be credited under the more generous CSRS rules. If you want your FERScoverage to become effective on the later date, then choose to have your retirement coveragecorrected to Social Security only, and you will be able to elect to transfer to FERS during theFERS Open Season that began July 1, 1998, and ends December 31, 1998. Unless you have abreak in service of 4 days or more, you will not have another opportunity to elect FERS coverage.

Attachment 3

FERS versus CSRS Offset Coverage

1 For special employee groups like law enforcement officers and firefighters, the rate increases from 1.3% to 7.5%. ForMembers of Congress, the rate increases from 1.8% to 8%. (See Section 30A2.1-2 in Chapter 30 of the CSRS and FERS Handbookfor Personnel and Payroll Offices for the CSRS Offset rates for regular and special employee groups before 1990.)

21

If employee chooses to remain in FERS,If employee chooses to have records correctedto CSRS Offset,

Standard Form 50Adjustments

Correct SF 50 (or equivalent personnel form) toshow employee elected FERS on effective date ofappointment or conversion of appointment,following the instructions in the Guide toProcessing Personnel Actions. (If erroneousFERS coverage occurred before July 1, 1987, seeChapter 11, Part 11A6, in the CSRS and FERSHandbook for Personnel and Payroll Offices.)

Correct SF 50's (or equivalent personnel forms) toshow CSRS Offset coverage on effective date ofappointment or conversion of appointment, followingthe instructions in the Guide to Processing PersonnelActions.

Employee Retirementand Social SecurityWithholdingAdjustments

Money withheld from salary for retirement andSocial Security is correct. (If erroneous FERScoverage occurred before July 1, 1987, seeChapter 11, Part 11A6, in the CSRS and FERSHandbook for Personnel and Payroll Offices.)

XIII. Money withheld from salary for SocialSecurity is correct.

XIV. Money withheld for retirement will be correctunless the employee exceeded the SocialSecurity maximum wage base in any calendaryear. (Under CSRS Offset, the retirementdeductions withheld from an employee's payincreases from 0.8% to 7%1 when theemployee’s basic pay for retirement reachesthe Social Security maximum taxable wagebase and Social Security deductions stop.)

Attachment 3

FERS versus CSRS Offset Coverage (Continued)


22

Agency ContributionsAdjustments

Agency contributions for retirement (not TSP) arecorrect. (If erroneous FERS coverage occurredbefore July 1, 1987, see Chapter 11, Part 11A6, inthe CSRS and FERS Handbook for Personneland Payroll Offices.)

Agency contributions have been overpaid. UntilOctober 1, 1997, the agency contribution for mostCSRS Offset employees was 7%. The rate istemporarily increased to 8.51%. See Payroll OfficeLetter P-98-11 for further instructions on how tocorrect agency contribution.

Individual RetirementRecord Adjustments

Individual retirement record is correct. (Iferroneous FERS coverage occurred before July 1,1987, see Chapter 11, Part 11A6, in the CSRSand FERS Handbook for Personnel and PayrollOffices.)

XV. Agency payroll office corrects individualretirement record, redistributing theretirement deductions withheld fromemployee's salary so that the proper amountis credited under CSRS Offset. If employeeexceeded Social Security maximum earningslimitation, adjust retroactive employeecontributions amount.

XVI. If employee was under the wrong retirementsystem at a previous agency, that agency’spayroll office must correct the employee'sretirement record for that period. Notify anyformer agency so it can correct employee'srecords.

Attachment 3



2 For nondeduction law enforcement or firefighter service after December 31, 1974, the applicable deduction from basic pay is7.5 percent. Different deduction percentages also may apply to nondeduction service performed by Congressional employees, Membersof Congress, bankruptcy judges, U.S. Magistrates, and judges of the Court of Military Appeals. Nondeduction service performedbefore 1970 will have a different deduction rate.

3 See Footnote 2 above.

23

Effect on Annuity Advise employee that all service performed beforeeffective date of deemed FERS election is subjectto CSRS rules; it will make up a CSRScomponent of any future FERS benefit.

Advise employee that when s/he becomes eligible forSocial Security benefits after retirement, theemployee’s annuity will be reduced, or offset, by thevalue of the Social Security benefit s/he earned duringher or his CSRS Offset service. Service performedbefore effective date of CSRS Offset coverage willnot be used in determining the amount of the offset.

Effect on CivilianDeposit forNondeduction Service

Deposit for nondeduction service performed priorto the effective date of the deemed FERS electionis computed under CSRS rules at 7% of earningsrather than 1.3%.2

XVII. Ask employee if deposit was already paidin full or in part under FERS rules.

XVIII. Estimate CSRS deposit for employee,using guidance below.

Deposit for nondeduction service performed prior tothe effective date of CSRS Offset coverage iscomputed under CSRS rules at 7% of earnings ratherthan 1.3%.3

XIX. Estimate CSRS deposit for employee. Interest will accrue on the entire deposit undercurrent rules (see Chapter 21 of the CSRS andFERS Handbook).

Attachment 3



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Effect on CivilianDeposit forNondeduction Service(continued)

XX. If deposit was fully paid under FERSrules, employee owes only the additional5.7% of earnings. No additional interestwill be charged, but the payment must becompleted before retirement.

XXI. If deposit was partially paid, interest onthe additional 5.7% of earnings will accrueprospectively.

XXII. If no payments have been made, interestwill accrue on the entire deposit undercurrent rules (see Chapter 21 of the CSRSand FERS Handbook).

Caution: These interest rules apply only incases where the FERS coverage is wrong as aresult of the Conner decision where the Courtruled that OPM’s regulations implementingthe 5-year test were incorrect. They do notapply to other deemed FERS elections wherean employee can elect to remain in FERSbecause his or her agency erred in placing theemployee under FERS.

See next page for guidance on return of civiliandeposit payments to employee.

XXIII. If deposit for nondeduction service waspartially or fully paid, inform employee thatpayments already made will be returned uponrequest.

XXIV. If employee chooses to have moneyreturned, send employee’s writtenrequest to OPM’s RetirementOperations Center and identify it as anelection made under the Connerdecision.

Attachment 3



25


XXV. If deposit for nondeduction service waspartially or fully paid, inform employeethat payments already made will bereturned upon request.

XXVI. If employee chooses to havemoney returned, send employee’swritten request to OPM’sRetirement Operations Center andidentify it as an election madeunder the Conner decision.

Effect on MilitaryDeposit

Military service will count toward retirement onlyif a military deposit is paid for the service. Military service performed before the erroneouscoverage is part of a CSRS component and iscredited under CSRS rules. If employee paid aFERS military deposit for that military service,s/he owes the difference between a CSRS militarydeposit at 7% and a FERS military deposit at 3%.

Military service will count toward retirement only if amilitary deposit is paid for the service. If employeepaid a FERS military deposit for the military service,s/he owes the difference between a CSRS militarydeposit at 7% and a FERS military deposit at 3%.

XXVII. Compute the additional militarydeposit the employee owes and advisethe employee of the amount.

Attachment 3



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Effect on MilitaryDeposit (continued)

Compute the additional military deposit theemployee owes as follows:

XXVIII. If the post-1956 military deposithas been paid in full, do notcompute interest on the additional4% of military basic pay nowneeded to complete the deposit. Notify the employee of theadditional principal due and of theneed to make the payment in orderto pay the deposit in full. Thepayment must be completed beforeretirement.

XXIX. If the employee has made no post-1956 military deposit payments,recompute the deposit amount andinterest. Interest accrues on theentire amount of the employee'spost-1956 deposit beginning withthe employee’s initial InterestAccrual Date (IAD).

XXX. If the post-56 military deposit is partiallypaid, then interest on the additionaldeposit amount accrues prospectivelybeginning with the employee’s next IADanniversary. Do not recompute the

XXXI. Give the employee credit for eachFERS deposit payment made duringan interest accrual period beforeadding interest to the unpaid balance.

XXXII. If deposit for military service waspartially or fully paid, inform employeethat payments already made will bereturned upon request: The election tomake the military deposit will beconsidered invalid.

If employee chooses to have money returned,

XXXIII. Agency payroll office pulls back fromthe Civil Service Retirement &Disability Fund the amount of theFERS military deposit previouslyremitted.

XXXIV. Payroll office voids and destroys anySF 3100 documenting the FERSmilitary deposit.

XXXV. Payroll office refunds the erroneousmilitary deposit to the employee.

XXXVI. If military deposit was paid when theemployee was at a prior agency,contact OPM. OPM, not the currentagency, refunds the military deposit to

Attachment 3



27



If deposit for military service was partially or fullypaid, inform employee that payments alreadymade will be returned upon request: The electionto make the military deposit will be consideredinvalid.


XXXVII. Agency payroll office pulls backfrom the Civil Service Retirement& Disability Fund the amount ofthe FERS military depositpreviously remitted.

XXXVIII. Payroll office voids and destroysany SF 3100 documenting theFERS military deposit.

XXXIX. Payroll office refunds the

Attachment 3



28


XL. If military deposit was paid when theemployee was at a prior agency, contactOPM. OPM, not the current agency,returns the military deposit to theemployee.

Effect on Credit forService Under AnotherRetirement System forFederal Employees

Service under another retirement system forFederal employees, e.g., TVA, Federal ReserveBoard, Foreign Service, etc., performed beforethe effective date of the deemed FERS election ispotentially creditable under a CSRS component,provided the employee can waive entitlement toall benefits under the other system. This is trueeven if the service was performed after 1988. Generally, an employee must take a refund of anyretirement deductions under the other retirementsystem and deposit the amount of the refund inthe Retirement Fund, with interest. The actuarialreduction is available for pre-10-1-90 refundedservice. See sections 20A2.2-7 & 8 and 21A3.1-3in the CSRS and FERS Handbook for Personneland Payroll Offices. The service does not moveover to the FERS component, even if SocialSecurity deductions were withheld from theemployee’s salary along with retirementdeductions, such as for TVA employees.

Service under another retirement system for Federalemployees, e.g., TVA, Federal Reserve Board,Foreign Service, etc, is potentially creditable service,provided the employee can waive entitlement to allbenefits under the system. Generally, an employeemust take a refund of any retirement deductions underthe other retirement system and deposit the amount ofthe refund in the Retirement Fund, with interest. Theactuarial reduction is available for pre-10-1-90refunded service. See sections 20A2.2-7 & 8 and21A3.1-3 in the CSRS and FERS Handbook forPersonnel and Payroll Offices. The service is notused in determining the amount of the CSRSOffset annuity reduction, or offset, when theindividual becomes eligible for Social Securitybenefits even if the employee was covered bySocial Security while under the other retirementsystem, such as TVA service.

Attachment 3



4 If the break in service was longer than 3 years and the employee returned to Federal employment before December 2, 1994,sick leave was not normally recredited on reemployment. If the return to Federal employment was on or after December 2, 1994, allunused sick leave may be recredited regardless of the length of the break, unless it was forfeited upon earlier reemployment.

29

Unused Sick LeaveDocumentation

Document employee's unused sick leave balanceon date of deemed FERS election. For mostemployees, it would be the amount of recreditedleave.4 (All Conner cases will have a CSRScomponent so agencies must post the unused sickleave balance as a remark on the corrected SF 50and individual retirement record.) Follow thesame procedures you currently follow fordocumenting sick leave of employees whotransfer to FERS from FICA-only positions.

Not Applicable

Effect on Designationof Beneficiary forRetirement

FERS designation of beneficiary is still valid. Noaction is necessary.

If there is a FERS designation (Standard Form 3102)in the employee’s OPF, ask employee to complete aCSRS designation of beneficiary (Standard Form2808) and have the employee send it directly to OPM. (Do not file CSRS designation in OPF.) The FERSdesignation is no longer valid. Temporarily retain theFERS designation in case something happens toemployee before a new designation is completed andfiled with OPM.

Attachment 3



30

Effect on GovernmentPension Offset andWindfall EliminationFormula under SocialSecurity

XLI. Employee is not subject to the Government Pension Offset under Social Security because s/he isautomatically covered by Social Security. (The Government Pension Offset affects the spouse andsurvivor benefits payable under Social Security based on the Social Security earnings of a Federalemployee’s spouse.)

XLII. Employee’s Social Security benefit based on his or her own earnings will not be subject to theWindfall Elimination Formula, if the employee has always had Social Security deducted from payduring employment both inside and outside the government.

TSP Adjustments See Attachment 5: Thrift Savings Plan Account(If employee elects deemed FERS coverage)

See Attachment 6: Thrift Savings Plan Account (Ifemployee elects to have retirement coveragecorrected to CSRS Offset)

Attachment 4

FERS versus Social Security Only Coverage

31

If employee chooses to remain in FERS,If employee chooses to have records correctedto Social Security Only,

Standard Form 50Adjustments

Correct SF 50 (or equivalent personnel form) toshow employee elected FERS on effective date ofappointment or conversion of appointment,following the instructions in the Guide toProcessing Personnel Actions. (If erroneousFERS coverage occurred before July 1, 1987, seeChapter 11, Part 11A6, in the CSRS and FERSHandbook for Personnel and Payroll Offices. Deemed FERS coverage cannot begin until thepay period after June 30, 1987.)

Correct SF 50's (or equivalent personnel forms) toshow Social Security only (FICA) coverage oneffective date of appointment or conversion ofappointment, following the instructions in the Guideto Processing Personnel Actions.

Employee Retirementand Social SecurityWithholdingAdjustments

Money withheld from salary for retirement andSocial Security is correct. (If erroneous FERScoverage occurred before July 1, 1987, seeChapter 11, Part 11A6, in the CSRS and FERSHandbook for Personnel and Payroll Offices. Deemed FERS coverage cannot begin until thepay period after June 30, 1987.)

XLIII. Money withheld from salary for SocialSecurity is correct.

XLIV. No money should have been withheld forretirement. Back out FERS retirementdeductions from employee’s retirementaccount and refund deductions to employee. Employee’s salary was underpaid due to theerroneous FERS deductions.

XLV. Notify former employing agency if retirementcoverage error occurred during earlieremployment, since that agency needs tocorrect its payroll records for the period theemployee was on the agency’s rolls.

Attachment 4

FERS versus Social Security Only Coverage (Continued)


32

Agency ContributionsAdjustments

Agency contributions for retirement (not TSP) arecorrect. (If erroneous FERS coverage occurredbefore July 1, 1987, see Chapter 11, Part 11A6, inthe CSRS and FERS Handbook for Personneland Payroll Offices. Deemed FERS coveragecannot begin until the pay period after June 30,1987.)

Agency contributions have been overpaid. Back outagency contributions from the Civil ServiceRetirement & Disability Fund. See Payroll OfficeLetter P-98-11 for further instructions on how tocorrect.

Individual RetirementRecord Adjustments

Individual retirement record is correct. (Iferroneous FERS coverage occurred before July 1,1987, see Chapter 11, Part 11A6, in the CSRSand FERS Handbook for Personnel and PayrollOffices. Deemed FERS coverage cannot beginuntil the pay period after June 30, 1987.)

XLVI. Agency payroll office voids and destroysSF 3100, individual retirement record,maintained on the employee.

XLVII. If employee was under the wrongretirement system at a previousagency, that agency’s payroll officemust correct the employee's retirementrecord for that period. Notify anyformer agency so it can correctemployee's records.

Effect on Annuity Advise employee that all service performed beforeeffective date of deemed FERS election is subjectto CSRS rules; it will make up a CSRScomponent of any future FERS benefit.

XLVIII. Employee is entitled to Social Securitybenefits only.

XLIX. Employee has no annuity right based onSocial Security-only service.

L. Employee must gain CSRS Offset or FERScoverage in the future to be eligible for an annuity.

Attachment 4



5 Deposit for qualifying service under a special employee group like that for law enforcement officers, firefighters, congressionalemployees, or Members of Congress may be 7 ½ or 8 percent, rather than 7 percent.

33

Effect on CivilianDeposit forNondeduction Service

Deposit for nondeduction service performed priorto the effective date of the deemed FERS electionis computed under CSRS rules at 7% of earningsrather than 1.3%.5

LI. Ask employee if deposit was already paidin full or in part under FERS rules.

LII. Estimate CSRS deposit for employee,using guidance below.

LIII. If deposit was fully paid underFERS rules, employee owes onlythe additional 5.7% of earnings. No additional interest will becharged, but the payment must becompleted before retirement.

LIV. If deposit was partially paid,interest on the additional 5.7% ofearnings will accrue prospectively.

LV. If no payments have been made,interest will accrue on the entiredeposit under current rules (seeChapter 21 of the CSRS and FERSHandbook).

Deposit for nondeduction service was erroneous. Ifemployee has not gained retirement coverage under asubsequent appointment or conversion toappointment, the deposit amount must be returned tothe employee.

LVI. Ask employee if s/he made a deposit forher/his nondeduction service, or applied tomake service credit payment.

LVII. Contact OPM’s Retirement Operations Centerif FERS deposit was paid in part or in full, orif employee applied to make a service creditpayment. Identify payment as erroneous as aresult of the Conner decision and employee’selection of only Social Security coverage.

LVIII. Provide employee’s current address.LIX. OPM will close out the employee’s service

credit account and refund any service creditpayment directly to the employee.

If employee has coverage under a subsequentappointment, see FERS versus CSRS OffsetCoverage Table.

Attachment 4



34


Caution: These interest rules apply only incases where the FERS coverage is wrong as aresult of th Conner decision where the Courtruled that OPM’s regulations implementingthe 5-year test were incorrect. They do notapply to other deemed FERS elections wherean employee can elect to remain in FERSbecause his or her agency erred in placing theemployee under FERS.

LX. If deposit for nondeduction service waspartially or fully paid, inform employeethat payments already made will bereturned upon request.

LXI. If employee chooses to have moneyreturned, send employee’s written requestto OPM’s Retirement Operations Centerand identify it as an election made underthe Conner decision.

Attachment 4



35

Effect on MilitaryDeposit

Military service will count toward retirement onlyif a military deposit is paid for the service. Military service performed before the erroneouscoverage is part of a CSRS component and iscredited under CSRS rules. If employee paid aFERS military deposit for that military service,s/he owes the difference between a CSRS militarydeposit at 7% and a FERS military deposit at 3%.

Compute the additional military deposit theemployee owes as follows:

LXII. If the post-1956 military deposit has beenpaid in full, do not compute interest on theadditional 4% of military basic pay nowneeded to complete the deposit. Notifythe employee of the additional principaldue and of the need to make the paymentin order to pay the deposit in full. Thepayment must be completed beforeretirement.

Any deposit for military service was erroneous. If theemployee has not gained retirement coverage under asubsequent appointment or conversion toappointment, the deposit amount must be refunded tothe employee.

LXIII. Agency payroll office pulls back from theCivil Service Retirement & Disability Fund theamount of the FERS military depositpreviously remitted.

LXIV. Payroll office voids and destroys any SF 3100documenting the FERS military deposit.

LXV. Payroll office refunds the erroneous militarydeposit to the employee.

LXVI. If military deposit was paid when theemployee was at a prior agency, contactOPM. OPM, not the current agency, refundsthe military deposit to the employee.

If the employee has coverage under a subsequentappointment, see the FERS versus CSRS OffsetCoverage Table.

Attachment 4



36


LXVII. If the employee has made no post-1956 military deposit payments,recompute the deposit amount andinterest. Interest accrues on theentire amount of the employee'spost-1956 deposit beginning withthe employee’s initial InterestAccrual Date (IAD).

LXVIII. If the post-56 military deposit ispartially paid, then interest on theadditional deposit amount accruesprospectively beginning with theemployee’s next IAD anniversary. Do not recompute the deposit toinclude interest accrued from theemployee’s initial IAD.


Attachment 4



37


If deposit for military service was partially or fullypaid, inform employee that payments alreadymade will be returned upon request: The electionto make the military deposit will be consideredinvalid.


LXIX. Agency payroll office pulls back from theCivil Service Retirement & Disability Fundthe amount of the FERS military depositpreviously remitted.

LXX. Payroll office voids and destroys any SF3100 documenting the FERS militarydeposit.

LXXI. Payroll office refunds the erroneousmilitary deposit to the employee.

LXXII. If military deposit was paid whenthe employee was at a prioragency, contact OPM. OPM, notthe current agency, returns themilitary deposit to the employee.

Attachment 4



38

Effect on Credit forService Under AnotherRetirement System forFederal Employees

Service under another retirement system forFederal employees, e.g., TVA, Federal ReserveBoard, Foreign Service, etc., performed beforethe effective date of the deemed FERS election ispotentially creditable under a CSRS component,provided the employee can waive entitlement toall benefits under the other system. This is trueeven if the service was performed after 1988. Seesections 20A2.2-7 & 8 and 21A3.1-3 in the CSRSand FERS Handbook for Personnel and PayrollOffices. The service does not move over to theFERS component, even when Social Securitydeductions were withheld from the employee’ssalary along with retirement deductions, such asfor TVA employees.

Not applicable because employee has no retirementcoverage.

Attachment 4



6 If the break in service was longer than 3 years and the employee returned to Federal employment before December 2, 1994,sick leave was not normally recredited on reemployment. If the return to Federal employment was on or after December 2, 1994, allunused sick leave may be recredited regardless of the length of the break, unless it was forfeited upon earlier reemployment.

39

Unused Sick LeaveDocumentation

Document employee's unused sick leave balanceon date of deemed FERS election. For mostemployees, it would be the amount of recreditedleave.6 (All Conner cases will have a CSRScomponent so agencies must post unused sickleave balance as a remark on the corrected SF 50and individual retirement record.) Follow thesame procedures you currently follow fordocumenting sick leave of employees whotransfer to FERS from FICA-only positions.

Not Applicable

Effect on Designationof Beneficiary forRetirement

FERS designation of beneficiary is still valid. Noaction is necessary.

Employee has no retirement coverage. If there's aFERS designation (Standard Form 3102) in theemployee’s OPF, it no longer is valid. Mark it“Void,” and destroy it. If the employee dies beforethe employee’s retirement deductions can be returnedto him/her, pay based on the order of precedence forunpaid compensation. The deductions wereerroneously withheld, and they represent a salaryunderpayment.

Attachment 4



40

Effect on GovernmentPension Offset andWindfall EliminationFormula under SocialSecurity

LXXIII. Employee is not subject to theGovernment Pension Offset underSocial Security because theemployee is automatically coveredby Social Security. (TheGovernment Pension Offset affectsthe spouse and survivor benefitspayable under Social Securitybased on the Social Securityearnings of a Federal employee’sspouse.)

LXXIV. Employee’s Social Security benefitbased on his or her own earningswill not be subject to the WindfallElimination Formula, if theemployee has always had SocialSecurity deducted from pay duringemployment both inside andoutside the government.

Not Applicable. Employee is not covered by aFederal retirement system.

TSP Adjustments See Attachment 6: Thrift Savings Plan Account(If employee elects deemed FERS coverage).

See Attachment 7: Thrift Savings Plan Account (Ifemployee elects to have retirement coveragecorrected to Social Security Only).

Attachment 5

41

Thrift Savings Plan Account

(If employee elects deemed FERS coverage)

Opportunity to MakeUp EmployeeContributions

An employee who elects deemed FERS coverage should havebecome eligible to participate in the TSP with the effective date ofthe FERS election. Consequently, the employee should be given theopportunity to make up employee contributions missed during theperiod beginning with the effective date of the deemed FERScoverage to the date the employee actually became eligible toparticipate in the TSP (i.e., the first day of the pay period that theemployee began receiving agency automatic (1%) contributions). See 5 CFR 1605.2.

Adjustments to AgencyAutomatic (1%)Contributions

Agency computes and reports to the TSP record keeper the amountof agency automatic (1%) contributions missed during the perioddescribed above. Agency must also submit lost earnings records forthese retroactive agency contributions. See 5 CFR 1605.2.

Adjustments to AgencyMatching Contributions

If employee makes up missed contributions, agency must computeand report to the TSP record keeper the associated matchingcontributions. Agency must also submit lost earnings records forthese retroactive agency contributions. See 5 CFR 1605.2.

Notice to Employee Advise employee regarding his/her opportunity to make up missedemployee contributions and of the entitlement to retroactive agencycontributions.

Written Explanation ofAdjustments

Provide employee with written explanations of any adjustments madein his or her TSP account.

Attachment 6

42

Thrift Savings Plan Account (continued)

(If employee elects to have retirement coverage corrected to CSRS Offset)

Adjustments toEmployeeContributions

The agency must submit negative adjustment records to the TSPrecord keeper to remove excess employee contributions. The agencymust refund these contributions to the employee through the paycheck process, and these contributions are taxable as ordinaryincome for the year in which they are refunded. Earnings on theexcess contributions will remain in the employee’s account. See5 CFR 1605.3.

Adjustments to Agency Contributions

All agency contributions and attributable earnings will be removedfrom employee’s account. Agency should submit negativeadjustment records to retrieve those agency contributions that havebeen in the account for less than one year. Other agencycontributions and attributable earnings will be forfeited to TSP andused to offset administrative expenses. See 5 CFR 1605.3.

Notice to Employee Advise employee of ramifications to TSP account.


Provide employee with written explanations of the adjustments madein his or her TSP account.

Attachment 7

43

Thrift Savings Plan Account (continued)

(If employee elects to have retirement coverage corrected to Social Security Only)

Adjustments toEmployeeContributions

The agency must submit negative adjustment records to the TSPrecord keeper to remove all employee contributions. The agencymust refund these contributions to the employee through the paycheck process, and these contributions are taxable as ordinaryincome for the year in which they are refunded. See 5 CFR 1605.3.

The TSP will pay the earnings attributable to employee contributionsdirectly to the employee. These earnings are also taxable as ordinaryincome for the year in which they are paid. See 5 CFR 1605.9.

Adjustments to Agency Contributions

All agency contributions and attributable earnings will be removedfrom employee’s account. Agency should submit negativeadjustment records to retrieve those agency contributions that havebeen in the account for less than one year. Other agencycontributions and attributable earnings will be forfeited to TSP andused to offset administrative expenses. See 5 CFR 1605.3.

Notice to Employee Advise employee of ramifications to TSP account and taxconsequences (i.e., amounts received from agency and TSP aretaxable as ordinary income).


Provide employee with written explanations of the adjustments madein his or her TSP account.

Date post:	14-Sep-2020
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